GBP │ Mr Osborne’s lose-lose situation

16 November 2008

Scorched-earth tactics by Mr Brown it may well be, but it seems odd for Mr Osborne, the Shadow Chancellor, to express his opinion publicly that there could be a run on the pound and a total collapse of the British currency may be imminent. He may well have felt that he needed to speak out and that he is telling the truth, but it seems such a foolish thing to do politically. Mr Osborne has let himself into a situation where he loses whatever happens, and whatever he does or says will just make that hole bigger. There is no way out, and he keeps digging.

There is no doubt that Sterling has been falling against other major currencies and parity with Euro seems likely in the near future. So far, it has been a steady and relentless fall, but not a catastrophic collapse. Now Mr Osborne has raised the possibility of a crash, a sharp depreciation of the pound may take place, may be not. Let’s consider what happens if the pound were to fall dramtaically on Monday: Mr Osborne would be blamed, at least partially, for that drop, even if his comments had no bearing whatsoever. If a sharp depreciation does not materialize, he looks foolish and dangerously irresponsible for talking down the pound. As said, whatever happens, Mr Osborne loses.

It’s not good news for the Conservatives. The whole affair has drawn attention to clumsiness among the Tories and their policies, instead of the dire economic situation that Labour has presided over, and like Mr Osborne, they are in a lose-lose situation. If the Tories ditch Mr Osborne or he is persuaded to resign, then it will cause havoc among the front bench and make it difficult to present a credible set of economic policies. If he stays, he can be villified (if the pound falls) or teased (if the pound doesn’t fall) by Mr Darling, who can remind us all about the Tories and Black Wednesday, ERM, Norman Lamont, sleaze, warm beer and cricket.

PS: A fall in the pound has been good news for tourists visiting Britain. Le Monde reported that the French are taking the Eurostar more and more frequently to do their shopping in London, and you can spot many of them at Liberty. At least the tourist industry may be in for a good time. Anyway, the French seem somewhat smug at the moment, given it has managed not to fall into a recession.